Educational Articles

Dow-30 Earnings: Du Pont - Third Quarter 2012

Michael Napoli, CFA
| October 23, 2012

Diversified chemicals manufacturer and Dow-30 component Du Pont (DD – Free Du Pont Stock Report) has reported third-quarter results. Revenues and share earnings fell short of the prior-year results, and our estimates. Revenues from continuing operations of $7.4 billion declined roughly 9% from the prior-year period. Earnings from continuing operations were $0.32 a share, compared to $0.60 per share in the third quarter of 2011. Note that the Performance Coatings line, now pending divestiture, has been reclassified and is being reported as a discontinued operation. As a result, operating profits per share came in at $0.44, well below the prior-year tally of $0.69. Shares of Du Pont are trading 8% lower this morning, following the earnings release.

Performance suffered from volume declines in both the Electronics & Communications and Performance Chemicals businesses, especially in the Asia/Pacific region. The Electronics & Communications line experienced lower volume in photovoltaic materials, though this was partly offset by healthy demand for materials in smart phones and tablets. The Performance Chemicals line experienced lower demand for titanium dioxide and fluoropolymers. Volumes were hurt by softness in Europe and in the Asia/Pacific region, owing to lower infrastructure spending and weakness in construction markets. Meanwhile, sales declined moderately in the Performance Materials business. Results in this line were hurt by unfavorable currency trends and softness in the industrial and electronics markets. However, this was partly offset by healthy packaging and automotive markets. Moreover, the company posted moderate top-line growth in the Nutrition & Health and Agriculture segments. Elsewhere, the Nutrition & Health business benefited from strong demand for specialty food ingredients and the Agriculture line experienced healthy orders for its Pioneer seed and Crop Protection products.

Weakness may well persist in the near term. As a diversified manufacturer of chemicals, the company remains vulnerable to a downturn in the global economy. Macroeconomic challenges in Europe, elevated unemployment on the domestic front, and a potential slowdown in emerging markets could all hurt results in the year ahead. Overall, we look for revenues and share earnings of $38 billion and $3.80, respectively, for full-year 2012. (In keeping with Value Line convention, our estimates will not be adjusted for the upcoming divestiture of the Performance Coatings line until the transaction has been completed). The company expects 2012 earnings from continuing operations to range between $3.25 and $3.30 per share, compared to $3.55 a share for 2011.

We expect higher revenues and share earnings for Du Pont by 2015-2017. At present, this stock has good total return potential for the coming years, considering its healthy dividend yield. That said, subscribers who remain on the sidelines for the time being may be presented with a better entry point, should weakness persist in the coming months.

About The Company:Du Pont is engaged in science and technology in a range of disciplines, including high performance materials, electronics, safety and security, and biotechnology. The company operates on a global scale, manufacturing a wide range of products for distribution and sale to many different markets, including automotive, construction, agricultural, medical, protective apparel, electronics and nutrition.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.